Alan Cole (Full Stack Economics), How a Key Biden Tax Idea Got Crushed:
President Joe Biden came into office planning to tax intergenerational wealth more heavily. He had several policy ideas to do this, and the most intellectually defensible of these was to change a capital gains tax provision called “step-up basis.”
Under current law, when you sell an asset, you pay capital gains tax on the amount the asset appreciated. The appreciation is calculated by subtracting the acquisition price—known as the basis—from the sale price. However, there is an exception when you inherit an asset: the basis is the value of the asset at the time you inherited it, not the value at the time it was originally acquired. The capital gains between acquisition and inheritance are lost to the income tax system, as the Treasury Department explained in a recent report supporting Biden’s plan.
Biden had hoped to address this issue in upcoming legislation. But that plan is now in shambles after a public revolt and a decisive push from lobbyists like former senator Heidi Heitkamp. Step-up repeal has been entirely removed from the latest plans released by House Ways and Means Chair Richard Neal.
“Frankly this is a humiliating climbdown from the administration’s posture,” Capital Alpha Partners’ James Lucier told the Financial Times.
It was inevitable that Biden’s tax plans would face some headwinds: a razor-thin margin in both House and Senate, an organized lobbying force, and sincere public sentiments against them. But the Biden administration overreached by coupling this reform with a more aggressive provision that would have forced people to pay capital gains tax immediately upon inheritance, rather than at sale. ...
Tax Notes’ Lee Sheppard puts it most bluntly: “There’s no popular demand for taxing capital gains at death,” she wrote. “Demand stops at the exit from the faculty lounge.“ ...
A better approach on step-up might have been the “long game” played by Republicans in 2017 against provisions they opposed, like the state and local tax deduction or the mortgage interest deduction. Republicans made decisive cuts at the least defensible parts of those provisions, leaving smaller coalitions of beneficiaries to take on in the next round of reforms.
For Biden, a reform to step-up without any forced realization would have been a good start. He may have tried to do too much on this subject, and now he is at risk of getting too little.
(Hat Tip: Calvin Johnson)